The Bitcoin Bubble

http://techcrunch.com/2013/11/06/the-bitcoin-bubble/

by ssclafani • 13 years ago

34 42 13 years ago

Artifex• 13 years ago

This doesn't make much sense. Year over year, transaction volume is increasing.

Moreover, price is a function of demand. While there may be fewer transactions over the short term, those transactions may be larger in and of themselves. For instance, in April, there may have been more people purchasing single coins, but in November, there may be fewer people purchasing hundreds of coins.

Two charts do not tell the complete story.

skylan_q• 13 years ago

But if use is in decline, its value should follow. To see its value rise as its use declines is simply odd.

This is a decrease in the velocity of money, not necessarily a decrease in its demand. Sometimes and increase in the demand for money can cause a drop in velocity. It's one of the justifications for constant inflation (to keep us out of a deflationary spiral where people would rather starve to death than spend $0.01 on a year's worth of foodstuffs)

geuis• 13 years ago

I have a hypothesis that the increase in price since mid-October is tied to the spread of the CryptoLocker virus.

For those that don't know, this is a nasty little piece of work that encrypts your entire drive and any connected drives it can find, then gives you a warning that you have to pay $300 in bitcoin within 3 days or your data is deleted.

I just had this thought a couple hours ago but I'm not able to find any significant, verifiable data on how widespread CryptoLocker is. Hence, a hypothesis.

meowface• 13 years ago

CryptoLocker has definitely netted quite a bit of cash for its authors/spreaders in the form of Bitcoins, but I highly doubt it's significantly affected the market. I imagine you would need at least 100k successful Bitcoin ransoms, which I think is unlikely.

emddudley• 13 years ago

Sounds like the plot of a book... does it tell you to meet at a specific location in T'Rain?

GraffitiTim• 13 years ago

Here's a chart of the number of transactions excluding the 100 most popular addresses, which seem to be mostly the gambling service SatoshiDice [1]:

https://blockchain.info/charts/n-transactions-excluding-popu...

So could it be that SatoshiDice transactions have dropped a lot (flattening the overall graph) but other transactions have been increasing?

[1] https://blockchain.info/popular-addresses

crystaln2• 13 years ago

The number of transactions is a poor measure of the popularity of and demand for bitcoin.

Both transactions excluding popular services that post very high volumes of low value transactions, and USD value of all transactions, are much closer to reflecting the recent rise of bitcoin.

https://blockchain.info/charts/n-transactions-excluding-popu...

https://blockchain.info/charts/estimated-transaction-volume-...

pbreit• 13 years ago

Uh, the number of transactions is just about the best simple indicator there is of popularity. Can you think of anything better (and reasonably simple)?

rockyleal• 13 years ago

The price

mrb• 13 years ago

No it is not a good indicator. The reason is simple: SatoshiDice represents maybe 30-60% of all transactions, but only ~5% of the volume of bitcoins. (Informal estimations based on block chain analysis, go here to get an idea: http://blockchain.info/popular-addresses)

There is no simple and reliable indicator of Bitcoin activity. The simplest indicators can be very variable (eg. spamming the network with transacitions). Indirect indicators, like the number of merchants using Bitcoin are better. And looking at these indicators, it is very clear that Bitcoin activity is dramatically increasing. For example BitPay recently announced 10,000 merchants using their bitcoin payment processing platform (it took them more time to go from 0 to 1,000 merchants than from 1,000 to 10,000!).

This Techcrunch article was written by someone who did bad research and can't even draw correct conclusions from the graph :-/

crystaln2• 13 years ago

Can you think of anything better (and reasonably simple)?

I linked to graphs of two better indicators. Did you read my comment past the first sentence?

- Number of transactions exclusive of very low quantity transactions, approximated by excluding very high volume transactors.

- Overall value of transactions, converted to a more stable currency, in this case USD.

Both of these indicate increased usage approximating tracking the increase in bitcoin's money supply.

diogenescynic• 13 years ago

This suggests that 78% of bitcoins are being hoarded, waiting for prices to rise. Even when controlling extremely cautiously for the possibility of users who “lost” their bitcoins and other contingencies, they find that at least 51% of bitcoins have never been spent. http://blog.priceonomics.com/post/47135650437/are-bitcoins-t...

Reminds me of comic books and baseball cards in the 90s.

nullc2• 13 years ago

Unfortunately the cited paper is terrible science which was written in ignorance of how common Bitcoin software works.

They basically declared any coin "horded" if it was currently assigned to an address which had never spent. But the default behavior of the reference client is to always send your change to a never used address, which will only ever be spent from once. Additional, the common and strongly recommended pro-privacy behavior is to use a new address per transaction, and businesses need to do that to sort out which payment is which.

So it was actually surprising that the figure was as low as it was... but what it wasn't measuring was "hording".

brador• 13 years ago

So how would you measure hoarding?

ISL• 13 years ago

I'd really love to make transactions in bitcoin in Seattle, but haven't had the opportunity. I check once or twice a month...

Aha! A local food truck is now accepting BTC. Will have to visit when next they come through the neighborhood.

http://www.coindesk.com/now-accepting-bitcoin-seattle-based-...

rasengan• 13 years ago

Not a bubble. Come to the CN forums.

pieterhg• 13 years ago

Do you mean Bitcoin China forums?

wmf2• 13 years ago

Can someone summarize (in English) what's going on with Bitcoin in China? Why are people interested in it? Has something substantial changed recently or did a lot of new people in China just now discover Bitcoin?

maaku3• 13 years ago

did a lot of new people in China just now discover Bitcoin?

Pretty much. It's taking off like gangbusters as a popular investment vehicle there.

jzig• 13 years ago

link?

pedalpete• 13 years ago

What confuses me about bitcoin, and this current surge, is the lack of liquidity. I don't understand how this might affect the value of bitcoins, but as an example, if I were to purchase say $10k in bitcoins and later want to transfer those bitcoins into another currency, I would have to sell my bitcoins in a bunch of small transactions, assuming I can find a buyer wanting to give me Australian dollars for my bitcoins. Of course, this is a problem with all currencies, but we can almost always buy foreign currency from banks, who have the funds to make the exchanges. I just think this 'dealing with a bunch of middlemen' results in bitcoin being more susceptible to bubbles and crashes.

Can somebody set me straight on this?

nullc2• 13 years ago

You can go to any of the major bitcoin markets and sell thousands of dollars of coins while hardly moving the price for USD.

E.g. on MTGOX right now the best bid is $271 and a market order to sell 100 bitcoins right now would net 27056.5448 USD and would take the last price down to 270.1650 USD, resulting in an average price of 270.5654 USD/BTC.

Selling 1000 BTC would result in an average price of $266.9482.

Its certainly not the most liquid thing and getting funds to and from exchanges (or buying other things) isn't as available as one would hope, but it's not highly illiquid by any means. There are good markets for other major currencies too, though none are quite as liquid as the USD ones.

unclebucknasty• 13 years ago

How are you calculating the price movement as a function of order size?

mikeland86• 13 years ago

Volume might be lower in BTC, but it's going up in pretty much any other currency, and since prices are mostly pegged to non-BTC currency, it makes sense that BTC transaction volume drops as the currency appreciates (you can buy goods using less BTC).

Also, while big % changes makes people shout bubble, they clearly are not looking at BTC in the same way early adopters and speculators are. BTC is not stock (which can look like a bubble if its up 100% in short period of time) it is closer to a newer better version of gold that only 0.00001% of the population owns. People excited about BTC are thinking about what happens if 1% of the population owned BTCs.

Bitcoin might fail (sometimes better technologies do), but it is clearly a big improvement over current currencies and that's pretty exciting.

gwern• 13 years ago

What’s going on? We can’t be sure, but I think that the shuttering of Silk Road has led to a meaningful decline in Bitcoin transactions.

We can especially not be sure when we look at the graph of transactions per day and see nothing special on October 2nd... Good job reading patterns into noise there.

Aqueous• 13 years ago

It isn't a bubble - BitCoin is just an inherently unstable, deflationary financial instrument.

This is why newer coins that actually correct for hoarding - like PPCoin - will start to see some traction because they will be more stable, since they encourage spending, encourage transaction volume. There will be less of a risk of the decoupling of the bitcoin economy and the bitcoin value.

erikpukinskis2• 13 years ago

I've been steadily spending Bitcoins for a while. I sold bitcoins to pay my rent several months in a row.

People only "hoard" Bitcoin until the temptation to buy something awesome now is higher than the temptation to have more savings later. In my case having a longer runway to work on my own project is worth more to me than savings later in life.

There's nothing fundamentally inflationary about Bitcoin. In fact, because the supply is algorithmic, it's fundamentally not likely to either inflate or deflate. Prices are going up as financial markets and consumers wrestle with what it's worth, what it's good for, and how to use it. When that process levels off the price will stabilize, and it will be far more stable than any other currency.

steveklabnik• 13 years ago

In fact, because the supply is algorithmic, it's fundamentally not likely to either inflate or deflate.

This is wrong, or at least, not for the domain term 'deflationary' in economics. BTC is deflationary because there are only a finite number of BTC, while the population is still growing.

http://en.wikipedia.org/wiki/Deflation#Money_supply_side_def...

adamb_2• 13 years ago

I think bitcoin (like most protocols) has first mover advantage, and won't be replaced by something similar, unless something catastrophic happens to it.

crassus• 13 years ago

Also, it remains to be seen if miners keep mining bitcoin after the block rewards run out. IMO this is bitcoin's only design mistake.

ilaksh• 13 years ago

I'm not an expert on finance or anything, but when I look at the bitcoin price charts I see an earthquake. So I have to assume that a significant percentage of people are looking at that and thinking the same thing: I should just wait until it spikes down again, buy a little, and it will probably jump up later and I will make hundreds or thousands of dollars.

I know that its supposed to be an alternative form of currency and all and not just there for speculation or whatever, but realistically, I think there must be a lot of people just speculating.

Anyway in that case I don't care if it is a bubble, I just want it to go up one more time after I buy it.

But the idea is really supposed to be using bitcoin instead of dollars for normal transactions right?

adamb_2• 13 years ago

What do you think a bitcoin will be worth in 10 years? If it doesn't die (read: get killed), it'll likely stop being a novelty and actually have practical use (currently I have to go out of my way to find a good/service that accepts bitcoins.) Mix that in with a generation of grown "digital natives" and suddenly 100's of millions of average people are now likely to use bitcoins.

As we know, there's a max of 21 million bitcoins (which we won't hit for years) - spread that across ~500 million users, and I think we'll see the value of a single bitcoin be 10x-100x higher than what it currently is.

It'll be a bumpy ride to get to that value, and I think this is the very beginning of it.

kaonashi• 13 years ago

So the removal of the Silk Road Bitcoins from circulation led to a predictable rise in deflation, with the associated decline in activity. I'd thought that Bitcoin economies might be fragile, but this is pretty surprising.

vijayboyapati• 13 years ago

The best rebuttal to the perennial and cliche bubble articles is the post by Mencius Moldbug "Bitcoin is money, bitcoin is a bubble". http://unqualified-reservations.blogspot.com/2013/04/bitcoin... He perspicaciously explains that moneyness is inherently related to bubbleness. The two go hand in hand

The concept of "moneyness" is also explained very well at JP Koning's blog: http://jpkoning.blogspot.com/2012/12/why-moneyness.html

These guys have more insight, into the monetization of bitcoin, in their little finger than Joe Wiesenthal has in his bromide producing brain.

grinnbearit• 13 years ago

I'd add http://unqualified-reservations.blogspot.in/2011/04/on-monet... to round it off

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